What are structured products?

 Structured products are designed to facilitate highly customized risk-return objectives. They can be principal or non-principal protected, issued by non-banking finance companies (NBFCs) as non-convertible debentures (NCDs) and are driven by investor needs, liquidity status and the credit rating of the issuer and prevailing market scenario, among other factors. The parent NBFC usually guarantees the principal of a principal protected NCD.

 These products were initially made available to cater to the needs of high net worth investors. However, they are now being offered to retail investors as well. So, the concept of structured products is relatively new for retail investors.

An important feature of principal protected structured products is that they offer protection of capital invested but only if held to maturity. To illustrate the concept of capital protected structured product, consider this example: An investor invests Rs. 100 in a 5 year structured product, wherein the issuer simply invests in a risk-free bond that has sufficient interest to grow to Rs. 100 after the five-year period. This bond might cost Rs. 80 today and after five years it will grow to Rs. 100. In this way, the capital protection part is taken care of. With the leftover funds, the issuer purchases shares or derivatives as per the investment strategy which shall provide the upside to the product.

Structured products are complicated, investors should know the risks. They are not suitable for all investors. Each structured product can exhibit very different characteristics, as well as associated risks and rewards. The primary and most critical risk linked to structured products is credit risk or the risk that the issuer may default. The product, basically an NCD, is rated as a debt instrument from the NBFC that issues it and carries the same risk of default and non-payment of coupon as other debt instruments. This essentially means you take the risk, irrespective of it being a capital-protected structure, that the issuer may not be able to pay you back.

Let me introduce few structures to you:

1. Capital Protected Structure, with an outlook that market will not go above 35% in two years.

This is a product issued by PMS division of one of the Mutual Fund companies. It is a two year product, wherein the downside is protected i.e. it is a capital protected product. On the upside, the scenario is such that, if the market (Nifty) is more than 35% of the entry level on any observation date (date as mentioned in the term sheet) then the investor gets only 23% absolute returns. But if the closing Nifty does not cross the 35% mark then the returns to the investor are double of the closing nifty. i.e. if in the two year period, nifty never goes above 35%, and the closing nifty is say 30% above the entry level, then the investor gets 60% absolute returns on his investment. Lastly if the closing Nifty is below the opening nifty then the investor gets his capital invested. So, in such a product investor gets a chance to participate in equity markets with no risk of loosing the capital, getting double the market returns if the nifty does not cross a specific level or sacrifice the excess returns if nifty crosses the barrier level. So, if the investor’s two year view for the market fits in the framework of this product then one can take a chance to invest in this product.

2. Semi-protected Structure, with an outlook that market will go above 20% in three years.

This is a product issued by one of the Wealth Management companies. It is a three year product, wherein there are three scenarios. If the nifty is upto 25% below the opening nifty, then there is capital protection, but beyond -25% the loss is completely to be borne by investor. On the upside, if the closing nifty is above 20% of the opening Nifty, then the investor gets 1.5 times of the nifty returns, but if the nifty is in the range of 0%-20% then again the investor gets only the initial capital invested. Here the investor is expecting the market to rise more than 20% after three years, only then he would gain 1.5 times of whatever is the nifty performance. Else between -25% to +20% his capital is protected and below 25%, he will bear the loss.

Such are the structured products in the market. Their terms and conditions need to be understood properly before participating in them. As I have been pressing about the need for tactical asset allocation in today’s volatile, dynamic & innovative financial world, structured products can be considered an important alternative for investments. Structured products can protect as well as grow your accumulated investments. It would be best to invest in them through a knowledgeable financial advisor, who would be able to properly decipher the product for you and would be able to guide you to invest or not to invest in them as per your risk taking abilities.

LIC has launched Jeevan Ankur, an endowment plan, especially designed to meet the educational and other needs of the child. The plan ensures that your responsibilities are met whether you survive or not without the need for your family to depend on others. The risk cover under this plan will be of the parent and child shall be the beneficiary.

General features of the policy are more or less like other child plans in the market. The plan offers single and regular premium payment options. Premiums can be paid regularly by opting for yearly, half yearly, quarterly and monthly mode. By paying additional premium you can customize your plan by including the riders. The plan will not have any loan facility. In case of maturity of the policy, sum assured along with loyalty additions (if any) is paid. In case of death of the policy holder, it pays sum assured to the nominee/beneficiary, plus 10% of SA every year till the end of the policy term as income benefit and maturity benefit of sum assured along with loyalty additions (if any). If the nominee (child) dies before maturity, the policy holder can nominate another child and other benefits remain the same. If there is no other child, then the benefits will continue and the maturity proceeds will pass onto legal heirs.

Just like other endowment policies even LIC Jeevan Ankur seems to provide lot of features and bundles things in such a way that it’s too persuasive, but one needs to remember that there are no free lunches. From the investment perspective, policy’s returns are not something to cheer about.

Considering the illustrations given by LIC:

Illustration 1– if a 35 year old man wants to purchase policy of sum assured of Rs. 1 lakh for 25 year tenure, the premium would be Rs. 3587 (exclusive of service tax) per year. As per the illustration, assumption of loyalty additions is Rs.7500 in scenario 1 and Rs. 94000 in scenario 2. Considering one receives loyalty additions of Rs.94000, the final maturity proceeds would be Rs. 194000. So if you pay Rs. 3587 per year for 25 years and get back Rs.194000, then the final return turns out to be 5.51% p.a. only. This rate will not even help you beat the inflation, leave aside fulfilling the dream.

Illustration 2: same as illustration 1, only the premium payment mode becomes single premium so the premium turns out to be Rs. 40900 (exclusive of service tax). Even in this illustration there are two scenarios: scenario 1, loyalty additions are Rs.9000 and scenario 2 where loyalty addition is Rs. 180000. Consider if the loyalty additions comes out to be Rs. 180000, the total amount sums up to Rs. 280000. Thus the return from this plan turns out to be only 8%. Again not very attractive return, plus there is an assumption of loyalty addition on the higher side as per the illustration.

The policy return would really work out well if the policy holder’s death is premature. Considering illustration 1, assume that the policy holder dies after paying 5 annual premiums, in this case the total cash outflow is Rs. 17935 (3587*5), but his/her child would get Rs.1 lakh at the time of death and Rs. 10000 (10% of Sum Assured) as an income every year for next 20 years (remaining tenure). Also the child would receive 1 lakh + loyalty additions at the maturity of the policy. All this looks very attractive but note that the probability of such a situation where a 35 year old guy dies is less, hence the probability to get these attractive returns is very low. Just because of well compensated death benefits one shouldn’t buy the policy.

Like every other policy, this one also gives rebates. There are mode rebates as well as sum assured rebates. These rebates will enhance your returns to a certain extent. But keeping your long term goals in mind are these returns of 5.5% or 8% (which are also not guaranteed) sufficient? It would be ideal to go for a term plan for the quantum of risk cover to be able to secure your child’s future and rather do investment in various other products available in the market. As mentioned by me in my past articles, proper asset allocation between equity, debt and gold is a key to enhance your portfolio returns. Since your child’s dreams are precious to you as a parent, it is your responsibility to study and analyze any investment offerings’ benefits, features, returns and terms & conditions and then invest.

There are good reasons to break the taboo & not only think about such situations, but also discuss it with the closest to us, because these are important decisions to be made in advance. With medical science progressing, life expectancies of people are increasing. But does it make sense to be bedridden and yet have long life? Call is yours.

Few years back, one of my friend’s dads had himself taken a conscious decision to not go for a bypass surgery wherein he would have to take huge debt to be operated. If survived the bypass, he would have to bear the burden of debt and be bothered all the time to repay it, and if not survived then his children would have to bear the debt burden. He thought he had lived enough life at the age of 65 and was not willing to make an expense that would be burdensome. In this case, he was himself in senses to take the decision. But, imagine what a catch 22 situation it would have been for his children if he was unconscious and children had to take a call.

So, here is a document prepared by us, taking reference from a wonderful document termed “Five Wishes” (Most popular American living will originally distributed with support from a grant by The Robert Wood Johnson Foundation). In the document you will talk about your personal, emotional and spiritual needs as well as your medical wishes. This document will help you choose the person you want to make healthcare decisions for you if you are not able to make them for yourself. You will be able to exactly say to your family, friends and doctor, how you wish to be treated if you get seriously ill.

The document contains four wishes you would like to mention regarding the kind of medical treatment you would like to take. The first wish is about choosing the person you would want to assign to take healthcare decisions for you, when you won’t be in a condition to take them yourself. Here you should choose someone who knows you very well, cares about you, and who can make difficult decisions.

Second wish is about how comfortable you would want to be. It’s about the condition you would want to stay in while receiving the treatment. Here you can mention the type of cleanliness you would like, to be maintained around you or the type of music you would want to be played beside you etc.

Third wish is about how you would want people to treat you. Here you can mention about the love and care you would expect from your near and dear ones. Specifically in this wish you can mention whether you would like or not like to stay on life – support treatment if need be.

The last wish is about what you would want your loved ones to know, like how much you loved them. Here you can also ask your loved ones to forgive you if you have ever hurt them. You can also mention the type of memorial service you would like to be kept or not to be kept in your memory in case of your death.

There are free spaces given after every wish if you want to make any additions, subtractions or changes to the preset document. You can also add sheets if you want to mention more specifically about your healthcare requirements.

Once you have prepared such a document, you should talk to your friends, family and doctor about all such wishes you have made. Such a healthcare will, shall make their life easy while making critical decisions for you if need be. Being a financial planner, I have advised you about wealth accumulation and distribution. I have also covered topics of estate planning. This is a slightly different concept of making a healthcare will….to make difficult decisions for oneself in advance, so that your near and dear ones can take your utmost care the way you want to be cared….

If you wish to make such a healthcare will, you can contact me on my email id – mukesh@ghallabhansali.com

]]> http://mukeshdedhia.wordpress.com/2012/02/06/will-for-healthcare-treatment/feed/ 0 mukeshdedhia http://mukeshdedhia.wordpress.com/2012/02/03/at-the-time-of-recession-saving-is-as-good-as-earning/ http://mukeshdedhia.wordpress.com/2012/02/03/at-the-time-of-recession-saving-is-as-good-as-earning/#comments Fri, 03 Feb 2012 10:12:20 +0000 mukeshdedhia http://mukeshdedhia.wordpress.com/?p=64 ]]>  Thoughts of a young mother giving a Financial Planning perspective

            Whenever we talk about financial planning we talk about maximizing returns. We all seem to be running a rat race for making more money than others. But what about our expenses? One basic principle of Finance that all of us have learned in our childhood is “Money Saved is also Money Earned.”  Do you give this principle its due thought in your day to day life? Are you watchful of all your expenditures? Or are you one of those who easily get swayed by the spending habits of other people around you. Are you one of those who would give missed calls to friends expecting them to call you back in order to cut on wasteful expenses? Or do you fall in the typical ‘shop till you drop’ category of compulsive shoppers who just need excuses like boredom, stress or sales to spend. Compulsive shopping or spending can be a seasonal balm for the depression, anxiety and loneliness, but it will not assure more love, bolster self-esteem, or heal the hurts, regrets, stress, and the problems of daily living. It generally makes these feelings worse because of the increased financial burden the person has obtained from compulsive shopping.

I am sure that most of us do not fall into either of these extreme categories. But for sure what most of us do need is to control our purchasing habits and be more discerning in our spending. This is especially important now in the wake of a global turmoil happening. With so much economic uncertainty facing the whole world, we just cannot afford to ignore or give any less importance to our personal finances. The recession of 2008 is is still fresh in our minds when jobs and salary cuts had become the norm. One day after Diwali of 2008, the Associated Chambers of Commerce and Industry (Assocham), an industry association, published a report on the job market. Titled, “Jobs Scenario Post-Diwali,” the end-October survey said that seven key industrial sectors would see nearly 25% layoffs in the next two weeks. Times like these call for families to seriously look into their financial situation and make every possible effort to eliminate wasteful expenditures.

I would like to point out that this is especially relevant in case of families with young children.

Here I present the thoughts of a young mother in her own words. “Parents of this generation feel that they can fill their children’s lives with happiness by recklessly spending on them. Our little ones are facing so much pressure from all around them. Advertising and marketing companies are also now targeting young children in a big way. Our job as parents should be ideally to cushion and comfort them. But the parents of today seem to be getting into peer pressure themselves and taking irrational decisions for their children. We want our children to go to most expensive schools and hobby classes, wear branded clothes, spend on lavish parties, buy expensive games, and so on. The list seems to be endless. But the question we need to ask ourselves is whether we are giving them all this to give them a comfortable life or just because we want to satisfy our own false ego of having provided them with what other parents have provided. Is this what they really need from us?

Modern lifestyle has frozen the family size in the Indian society. If we just peep 3-4 generations back was parenting the same? It was common to see joint families with a lot of children being raised together in one household. Children of that time were so used to sharing clothes toys, etc. They were not brought up with the notion that happiness can be bought.  They knew how to seek happiness without buying clothes and toys, how to learn without spending money on expensive classes. Did the young parents of that time take so much emotional, physical or financial stress as we are taking upon ourselves? We are not only taking this stress on ourselves but also in turn passing it on to our children. Did that generation not produce successful individuals? Or

Can we say for sure that we are better parents? Lifestyle trends in urban India include rising incomes, longer working hours, working mothers, etc. In essence, the parents of today can be labeled as time-poor and cash-rich.

From Piano and classical music lessons to gymnastics and tennis, the cost of extracurricular activities for children have almost become an unavoidable luxury for many families. The activities aren’t cheap; the costs for application fees, registration costs, equipment and travel make extracurricular activities out of reach for many cash-strapped families, especially those with multiple children. Determined to give their children well-rounded experiences, parents are striving hard to fit these into their monthly budgets, even at the cost of cutting other more important essentials like healthcare or savings. Let us look at some ways in which we can make our own as well as our children’s lives simpler and less stressful with respect to hobby classes.

Make Hobbies Affordable: Consider the type of activities that you want your children to participate in. This may sound simple, but many times, parents steer their children toward individual sports and private instruction, which are usually significantly higher than the cost of team sports. Generally, the costs of private clubs are five times higher than municipal or non-profit programs — and they demand top-notch equipment, even for young players. If your child shows an interest in a particular sport or hobby, don’t go out and immediately hire a private coach, which can cost a lot. Generally, team sports and activities at recreational centers like the YMCA, local park departments, churches and non-profit youth leagues are almost always less expensive,

Save On Equipment: Equipment is often the second-highest cost for extracurricular activities. You can significantly cut down on this expense by buying professional-quality equipment at resale stores or asking other parents in your neighborhood or school to pass it on if their child is no longer using it. Most children have equipment that they no longer use, but it can be perfectly suited for your child.

Volunteer Your Time: Last but not the least, more than anything else in this world, your child needs your time and attention. The quality and virtues that you can give to your own child, a paid teacher will never be able to match. Think about it, if instead of cumbersome driving them around from one class to another after school, if we just sit with them at home and organize activities which can be done together as a family. Won’t it be better for our sanity as well as theirs?

It is really disturbing to see people spend money leaving aside their thinking will and not caring about their living comfort. I think it is time now to put on our thinking caps. We really need to be very judgmental with all our expenses. I believe ‘Faith in oneself’ is an essential part in determining what you believe to be necessary items to spend on. When you realise that you are over spending your money on unnecessary items, it is time to reflect and cut back.”

Also, the driver needs to be in control of the speed, if he doesn’t know how fast he is supposed to be going and is not in control of his car, and then if the unexpected happens, a minor mistake can turn into something a whole lot more tragic. The same can be said of investing. When you have not done some calculation of how diversified your portfolio is or how much risk is in your portfolio, you are not in control of your portfolio, and when the unexpected happens, like the 2008 market crash, you may even lead to losses that you can never recover from.

The financial world as we know is changing. The new world investors live in – unpredictability, dynamic information, rapid capital movement and shorter reaction times. It is critical to look beyond traditional assets to include other types of “new”, diversified assets in the portfolio and it is critical to ensure that such assets will have low correlation to these traditional assets. In a world that is increasingly getting globalized, it also makes absolute sense to seek multijurisdictional diversification as well as asset diversification. Multi-jurisdictional diversification introduces a world of opportunities while improving the risk/return balance in a wealth portfolio. It is important however, to ensure that a multi-jurisdictional diversification strategy ensures that one is not exposed to assets that will move in the same direction as the domestic assets.

In today’s volatile global markets, investors need to reassess the risks which they are prepared to take and reconsider how their existing investment objectives can be achieved. To ride through uncertain times, investor needs to understand that proper asset allocation is more important than market timing, that too dynamic/tactical asset allocation is more important than static/buy and hold asset allocation. It is like active risk management should now be undertaken over passive risk management. Most importantly, investor needs to understand that discipline is more important than emotion. Along with diversification, asset allocation and rebalancing are the pillars of disciplined investment.

If you use a strategic asset allocation, based on an evaluation of your goals, risk tolerance and investment time horizon, you will establish what you view as an ideal initial asset mix of equities, fixed income and cash based on the historical performance of each asset class. With a strategic asset allocation, you buy, hold, and rebalance periodically. You don’t trade because the market moves up or down, but rather when your personal circumstances change or your asset allocations stray too far from your ideal percentages. Note, however, that while financial experts generally recommend evaluating your portfolios with an eye toward rebalancing once a year, today’s volatile markets may create the need to rebalance more often rather.

Tactical asset allocation also begins with an evaluation of your goals, appetite for risk, and investment horizon, but your initial asset allocation plan is not considered a constant, but a starting point. Using a tactical approach, you’ll continue to evaluate macroeconomic and leading indicators for various markets, sectors, and asset classes to identify emerging opportunities. You’ll make potentially more frequent asset allocation shifts to capitalize on what you perceive as opportunities to potentially boost your total portfolio return and reduce risk. For example, you might make a move to hedge your portfolio against a declining rupee or inflation, or invest in a sector where you expect strong short-term growth.

While strategic asset allocation seeks to return to a previously set asset mix, tactical asset allocation seeks opportunities to create additional alpha — a measure of risk adjusted performance that measures risk as a comparison of the return achieved relative to the investment’s volatility. That is, tactical asset allocation responds to current economic or market conditions, whereas current conditions don’t play a central role in determining a strategic asset allocation.

Our transitioning market presents a great time to review what kind of asset allocation you use. I personally think initially while accumulating, you can start with the traditional buy & hold or strategic asset allocation strategies and when a sizeable portion of portfolio is built you can then shift to taking tactical positions with the advice of a sophisticated financial planner. As the investment world has reached a greater level of volatility, dynamism & innovation, tactical asset allocation is the way to protect as well as grow your accumulated investments. Tactical allocation is a must in this scenario. You need to change the gears of the car & increase or decrease the speed as per the road ahead.

I personally believe that spreading knowledge that you have acquired is the best gift you can give to the society. Through my articles, I have constantly attempted to give you something new & valuable to make you comfortable in the complex world of investments. Apart from writing articles, I also conduct “investor education seminars”. Last month, I came across one more interesting way of making my dear investors understand how to handle their investments in a better way i.e. by playing a board game named, “Chanakya’s Chakkravyuh.” I found it; by far the most effective way to impart financial literacy, because, learning with playing unlocks one’s thinking pattern and potential.

How will playing a game help? Today’s education system is designed to enable an individual to get a job & work in a limited pattern with specialized skill or knowledge. This results in a particular life style of daily slogging to earn enough money to manage our monthly expenses and strive to raise our standard of living, while we save some of the money for future. Thus we entangle ourselves in a sort of “Chakkravyuh” that we find difficult to break. The purpose of this game is making people aware about their behavior pattern related to finance. It brings a massive change in player’s attitude and mindset towards money.

The game gives you an opportunity to make simulated, real-life decisions and deal with the consequences. There are two stages to the game: 1. Chakkravyuh and 2. Raj Marg. You start in the ‘Chakkravyuh’ with a salary and normal expenses, based on the character (doctor, teacher, accountant etc.) you choose. At this point, you also choose a dream (buying Rolls Royce car or starting a cancer aid centre etc.) on the Raj Marg, something that is wishful thinking for the “aam aadmi”. Your basic objective, in the first stage is to increase your ‘passive’ income to more than your expenses. Passive income is income in the form of dividends from shares or mutual funds or rent from property, basically such income that is generated on its own out of the investments you make. Once your passive income is more than your expenses, you are out of the “Chakkravyuh”. You then get onto the ‘Raj Marg’ where you can win the game if you buy your selected dream or increase your cash flow by more than Rs. 15 lakh from big businesses that you buy there.

In a span of 4 hours, this game can helps you to find your real being. Even in the case of bankruptcy, you will be able to start a new beginning and win the game by breaking your Chakkravyuh. This game continuously requires you to update your balance sheet thereby helping you to measure your financial progress. By playing this game your mind will be trained such that in real life you will start seeing opportunities, which you were missing till now.

Few take-a-ways from the game are:

• Having a High Income Does Not Mean You Are Wealthy: Normally, people with high income have high expenses, thanks to their high standard of living. So, chances are you may end up with little surplus at the end of the month. Unless you turn that cashflow into income producing assets, you will have a hard time getting out of the Chakkravyuh. Thus one can be an ordinary teacher and can beat a doctor.

• Every Event In Your Life Impacts Your Cash Flow: Lose your job.  Have a baby.  Go on a shopping spree.  Invest in small/big nivesh schemes.  Donate to charities.  They all impact your cash flow. However, they don’t have to stop you from building your asset and minimizing your liabilities. You still have the power to determine how it impacts you.

• The More You Play The Game of Money, The More You Recognize Opportunities Around You: The more you learn about what’s possible, the more you are able to expand your consciousness and focus on those opportunities.  By taking advantage of those opportunities, you give your self a chance to gain your own financial freedom.

The game is conceptualized on books “Corporate Chanakya” and “Kautilya’s Arthashastra” to make each and every individual realize his/her full potential to earn abundantly. In the game, sutras from Arthashastra are used to educate individuals to become financially literate so that they can create wealth and happiness in their lives and people around them. The method of learning in the game is very simple: Play – Learn – Apply.

It’s not just a game, it’s a revolution. This is a simplified format to understand finance in modern world. It’s about the financial revolution that India is being part of, and to learn and be part of it you should play the game. Rather, you should spread the word to as many people as possible about this wonderful and interesting concept of learning to be financial free!

|| sa šrîh wah avyãt || (May that wealth protect you all!)

But what if the past performance does not sustain in future?

Some studies suggest that the chances of sustained outperformance by an active manager begin to dwindle with time. It has been observed that in developed markets, investors prefer to park their money in passive index funds rather than active funds, as their markets are more mature and efficient, this leaves little room for consistently beating the benchmark. For investors who do not rely on qualified professional financial advice, the odds of rightly selecting a diversified equity mutual fund scheme may not be very bright. Hence, while investing in actively managed funds one needs to do a thorough research on the fund house, fund manager and investment philosophy and consult one’s advisor before investing.

Investors who are merely interested in replicating the broader benchmark indices invest in index funds which typically follow a passive investment strategy. Passively managed funds are aligned to a particular benchmark index such as the S&P CNX Nifty, BSE Sensex, S&P CNX 500 or even for that matter a sectoral index such as BSE Bankex. These funds attempt to mirror the performance of the chosen benchmark index. This means no market timing, no portfolio churning and no hunting for extra returns. So, these funds will give you returns as good as the index, nothing more….nothing less (barring rebalancing and management costs). But, not many investors would be willing to settle for an index fund that will only give the market return. This is why passive investing has not caught on in India in a big way, unlike in some of the western countries.

Most passive funds we have are based on market capitalization-based indexes. This means that the weight given to a stock in the index depends upon its market capitalization (number of shares in the company multiplied by the market price). Market cap weighted indices and funds allocate more money to companies with higher market cap – this means that this strategy is likely to allocate money in favour of companies with higher prices while lower allocation is made to companies which are inexpensive and have a low price or valuation. This is against the fundamental tenet of long term investing where the objective is to generate returns by buying at lower price or valuations and selling at higher valuation. Market-cap weighted index, hence, overweight’s over-valued stocks and underweight’s under-valued stocks. Such exposure drags down the portfolio returns. So here comes fundamental indexing that tides away the problems of market capitalization based indexing.

Fundamental based index: A mix of passive & active investment strategy

Fundamentally based indices are ones in which stocks are weighted by one of many economic fundamental factors like, sales, earnings, book value, cash flow and dividends, basically accounting figures which are commonly used when performing corporate valuation. A key belief behind the fundamental index methodology is that underlying corporate valuation figures are more accurate estimators of a company’s intrinsic value, rather than the listed market value of the company. In this sense fundamental indexing is linked to so-called Fundamental Analysis. The reason why fundamentals-based indexes outperform market cap based indexes is that they regularly rebalance their holdings by selling expensive stocks and buying cheap ones. Globally, fundamental indexing is well-known among investors, though it is a relatively new concept.

This concept made way in India in July 2010, when Motilal Oswal Asset Management Company launched first Indian fundamentally-weighted Exchange Traded Fund (ETF), MOSt 50. MOSt 50 is based on Nifty 50 i.e. it includes all the Nifty 50 stocks but not in the same proportion as Nifty. Weightage of a stock in MOSt 50 basket is based on pre-defined methodology that assigns weights based on stock’s fundamentals such as return on equity, net worth, share price and retained earnings. This is to ensure that companies with good financial performance and reasonable valuation get higher weightage. In the past one year the fund has reported -27% returns, which shows some underperformance compared to its benchmark. But this is because in these are abnormal times, when cheap stocks are becoming cheaper. This cannot continue for long. Finally cheaper stocks will create extra alpha i.e. outperform the benchmark.

Fundamental index ETF provides one more interesting investment choice to us. It tries to give the best of both worlds to the investor: the low costs and broad diversification of passive management in combination with value investing.

 - Douglas H. Everett

            As a child, I had always dreamt of having a lavish office, being a leader and running my own business. Not knowing then, at all how I would get there, but the will within was strong. Today, I am actually living my dream. Though the journey till here has not been a cake walk as it seemed in the childhood dream, but the pride and satisfaction of living it is immense.

“All that we are, is a result of what we have thought” – Buddha. So, what I do is, even today I have my own dream world. In my dream world I VISUALIZE & Rehearse my future. But I wonder how many of you’ll have realized the power of dreaming? Or turning it into reality?

You would argue that since you are so busy in the rat race of life, you hardly get time to list down your dreams, leave aside working towards them in a disciplined fashion. So on occasions like “New Year’s”, you loosely, list down the small wishes you would like to fulfill. Rather, you would be at your creative best when it comes to composing “New Year” resolutions – and at your worst when it comes to keeping them. And then almost the same wish list continues year on year. Why? Because, you just did it, for the sake of it. Almost like an annual ritual because everyone does it – and then you will also be asked by others what your resolutions are!

This is good advice if you really want to change a behavior. The vast majority of people who make resolutions don’t intend to purse them with the energy and commitment of someone ready to make an important change. The whole point of a resolution is to acknowledge the existence of an ideal self you could slip into. So, enjoy acknowledging the potential for change and the core values at the heart of the resolution.

Making resolutions is a great idea. Compared to those who make no resolutions, resolvers are more likely to make the change. I believe wishful thinking has a way of coming true. Just shifting gears from “what we are doing” to “what we’d really like to do” has some effect. Again I would like to mention, while setting any goals in life, be prudent enough to see that they are S.M.A.R.T.

For e.g. your New Year resolution/goal can be as common as “I want to loose weight!” But don’t just leave it there; else your resolutions will be straying like a flock of sheep do without a shepherd to direct them. So make your goal S = Specific, M = Measurable, A = Achievable, R = Realistic & T = Time Related. So reframe your goal for something like, “I want to loose 12 pounds of weight in 3 months, for which I shall exercise thrice a week”. Doesn’t the resolution look more seriously set & achievable this way?

As I have mentioned earlier primarily, it’s important to BELIEVE in your dream.  You must believe you will receive the perfect weight and that it is yours already. You must imagine, pretend, act as if, make-believe, that you already have it.

Remember! Your goals may be non-financial, but most of them have a financial impact, which may be huge. So again when you think about loosing weight, finally you wish to be healthier. Illness and physical weakness has a financial cost associated with it on account of cost of remedy and if you are the primary earning member of the family, then you being in a good state of health is of utmost importance as it ensures you are able to continue earning!

So on a personal as well as professional front; make a list of at least 10 such things to look forward to in 2012. Think small and predictable, but nevertheless enjoyable (such as new episodes of a favorite TV show), as well as big dreams that you can work toward (such as finishing writing your novel, or a trip you’d like to take). Also here, I would like to recommend, register yourself on www.stickk.com , it is a smart way to set your goals and achieve them.

As the first week of the year approaches, I have butterflies in my tummy. It had been a particularly hard year on several fronts, and I am curious to know how I have fared vis-à-vis the goals I had set. So here I go to reconcile and to write down my, New Year resolutions’ list….

Keep Dreaming & achieving in life! Remember Shahrukh Khan’s dialogue in the movie Om Shanti Om, “Jab kisi cheez ko puri shiddat se chaho….toh puri kaynaat usse aapse milvane par majboor ho jaati hai!”

Daughter – The closest to a father’s heart. The relationship between a father & his little girl is very unique & special. All through the growing years father takes special care that his daughter gets the best of what she wants. While doing this he doesn’t even realize when his little princess turns to be young enough to be married to her prince charming.

But having a daughter get married can be a little traumatic. After all some young man is taking your place as the most important male in your daughter’s life. The emotional trauma is in expressible.

On the other hand if we see the financial impact, it is something which a father thinks about since the birth of his daughter. As a father he starts accumulating little by little for the D-day. It is every father’s dream to make his daughter’s wedding into a GRAND CELEBRATION.

As per his ability , the celebration of daughter’s wedding goes on for a day, three days, even a week long or more than that. He ensures the best of clothing, jewellery, décor, caterers, Invitation cards, photography………etc

But have you realized the bigger the celebration, bigger gets the HOLE of your pocket. People will come, celebrate, comment and go. How long will they remember the marriage…? The next day someone else will come up with a GRANDER CELEBRATION and your daughter’s wedding will be forgotten.

Here you will argue that I have been saving all these years only for my daughter, because I want to give her the best. I agree, but what ever you have been saving goes by the wind in just a few days. Pardon me for being practical, but spare a minute and think about it. Instead of having such a show off kind of wedding, why not invest that extra amount of money and give a better future to your daughter.

Let’s illustrate using actual numbers.

On an average a wedding costs around Rs. 1000000 to 1500000. This cost includes costly clothes, jewellery etc….

I am not telling don’t celebrate the wedding, but cut down on the expenses wherever possible. We can cut down on unwanted expenses like costliest of caterers, invitation cards…etc & do away with unnecessary formalities.

Suppose by cutting on these expenses, even if you save around Rs.3 lakhs & invest this amount in a conservative way, say at around 8% p.a. interest. This one time investment during the wedding can grow to more than Rs.30 lakhs in a period of 30 years. Isn’t it a pretty decent amount…?

It is just an example; you can invest as per your capability, at a higher rate & start investing even before her marriage, for her better future.

GOD forbid but if she gets into a financial trouble, this very investment can bail her out. She won’t have to ask for help from anybody. Even if thankfully such need does not arise, she can always have financial security throughout her life. This money can mean a lot during her older age.

Traditionally bride’s family paid for the wedding costs, but with the average cost of weddings sky rocketing, this cost can be shared by both the families. Due to these the burden on a father to marry his daughter nearly halves & this extra half can be invested for a wonderful financial future of his daughter. REMEMBER THIS INVESTMENT IS ONLY A GIFT TO YOUR DAUGHTER, NOT FOR SON-IN-LAW OR HIS FAMILY (This should not be misunderstood as a Dowry).

I just want the society to understand that we need change with changing surroundings. Marriage is an important phase for a daughter don’t commercialize it by showing off your money. Don’t be materialistic, be real & be wise…!!!!

In my last article, I shared the concept of mind mapping, a medium through which one can plan or sort things in a convenient yet extraordinary manner. Gone are the days when only possessing intelligence or a degree could get you success. Now, we are living in the age of information, we are provided with ample of data and information, the main crux lies in how proficiently one utilizes his intelligence to process that information.

The concept of mind map is quite an old concept but Tony Buzan is the philanthropist who has introduced this concept in a more convincing (packaged) way. It enables us to improve our way of working and performing tasks whether is it in the role of a student, teacher, employee, business person or so on. We are in the age full of information, only important thing is who and how fast somebody utilizes the information creatively.

Exploring and conquering the age of Intelligence
“Kaabil bano , success toh jhak maraa ke tumhaare pichey aayegi”, I am sure you must have heard this dialogue enumerable of times from the movie, 3 Idiots. Many people feel, that others have the better capability of remembering or memorizing things than them, this leads to a conclusion that they are smarter than them. Which is so not true! The fact is, in 9 out of 10 cases, people try remembering things in a planned and strategized format, which enables them to recollect the information more so accurately.
Tony Buzan states that it is the ultimate thinking tool – a creative and effective means of thinking that literally ‘maps out’ your brain. Mind maps is simply a fantastic technique which is not only simple but at the same time results in improvement in memory, thinking, creativity and concentration power. Mind maps as discussed in my previous article, have an organic like structure, that radiates from the centre (basic point) using curvy lines, colours, symbols, images and such things which is friendly to brain and which can be remembered quite easily. A long boring list of information can be converted a well organized maps with eye-appealing colours and memorable that also synergizes creativity and imaginary thinking.

Main principles of Mind mapping
The main principles of mind mapping are imagination and association. By linking the central idea to some other idea is known as association. Through such associations, human brain finds it easier to retrieve the information. When we associate one thing with some other thing, our brain automatically lays out the meaning and the link between the two or many ideas, which becomes easier to recollect the data, this also helps in improving the imaginary skills of our brain.
Mind maps can be hand-drawn and can also be drawn by using softwares, the software is available on one of Tony Buzan’s website called, www.imindmap.com

So now the concept, advantages are known to you, how exactly one should go about it?

Guidelines for Mind Mapping
1. Start in the centre with a word or an image of the topic, using different colours (if possible).
2. Use images, symbols, key words, colours throughout your Mind Map.
3. Each word/image must be alone and sitting on its own line.
4. The lines must be connected, starting from the central image. The central lines are thicker, organic and flowing (branches), becoming thinner (sub-branches) as they radiate out from the centre.
5. Make the lines the same length as the word/image.
6. Develop your own personal style of Mind Mapping.
7. Use emphasis and show associations in your Mind Map.
8. Keep the Mind Map clear by using radial hierarchy, numerical order or outlines to embrace your branches.

Further I would like to give an example and show you how exactly mind map is made. Let’s say, you want to do note down your goals of life, here your central idea should be your wish list of what exactly your goals are and draw the branches from the central ideas. You can check out the diagram given here, which makes the long lengthy notes into a simplified format.

Conclusion

This is a widely used technique which can be adapted by anybody for personal, family, studies, business plans. The vertically written or lengthy ideas act as a hurdle in being creative and active thinker, by using the mind mapping technique which can be known as easy note-making technique sets the idea keep flowing with its eye-appealing diagrams/structures. A lot more is been written and said across the world, so now its up to you to be the master of change in this age of intelligence.